Tag: Politics

Grain Market Roundup

As the conflict in Ukraine continues, the value of commodities has risen considerably. On Monday 7th March UK feed wheat futures (May-22) closed at £303 per tonne, a rise of almost £68 from 23rd February, the day before the invasion began. While prices have risen, daily movements have been volatile. Russia and Ukraine account for more than 28% of world wheat exports, as such developments in the conflict will have large ramifications for prices.

Despite the large rises in output prices as a result of the conflict, input prices are equally inflated. Russia is a key producer of fertiliser and exporter of fuels. The price of fuel is likely to stay inflated, with the UK and US governments announcing, on 8th March, their intention to ban Russian oil imports. The UK ban will be phased, Russian supplies of fossil fuels account for 8% of UK imports.

 

Outside of global politics, the International Grains Council (IGC) lowered its estimate of global grain stocks for the 2021/22 (current) season.  This was due to cuts in Southern Hemisphere maize production forecasts where dry weather is impacting on crop expectations.  This is also likely to be a continued driver of grain price rises.

Despite the factors globally which point to further grain price rises, we also need to consider the new crop (2022/23) when looking at the direction of grain prices.  The IGC has tentatively forecast an increase in grain stocks; as we move nearer to the new crop market the expected availability of the 2022/23 crop will have an increasing influence over prices. On 9th March the USDA is set to update its world supply and demand estimates, these will be watched closely.

In the UK, milling wheat premiums remain high relative to recent seasons.  Milling wheat premiums will be watched closely as we move towards spring in light of the high cost of nitrogen.  Feed barley prices have followed the same path as wheat prices, tracking lower through February before recovering.

Ex-farm oilseed rape prices have fallen back from their December high of £627 per tonne.  Rapeseed prices have responded to the incredibly tight UK, European and Global oilseed rape supply and demand.  However, prospects for the new crop are for improved supplies.  This will lead to lower prices than we have seen this year.  Of course, there is some time before the rapeseed harvest and the fundamentals still have time to change.  Soyabeans also need watching for the direction of rapeseed.  The dry weather in South America has supported soyabean prices and tightened the supply and demand outlook. The United Nations Food and Agriculture Organisation cut its estimates of South American soyabean production by 13.5 million tonnes (3.7%), earlier in March. A tightening of global vegetable oil and oilseed markets will lead to price rises.

Pulse prices remain flat through January and February, moving by just £1 per tonne across the last month.

General Election: Thumping Tory Majority

The Conservatives have secured their biggest overall majority since 1987.  At the time of writing, they have 364 seats (only 1 seat left undeclared) meaning that Boris Johnson will have a projected majority of 78 seats.  This is a resounding mandate for the Conservatives and means that unless something totally unexpected happens, the UK will formally leave the EU on 31st January 2020.

Across the UK, Labour’s vote crumbled as it struggled to surpass 200 seats (it won 203).  Jeremy Corbyn has announced that he will not lead Labour into another election, but shows signs of sticking around until the electoral post-mortem takes place.  Meanwhile, the Liberal Democrats’ strategy also backfired, winning just 11 seats and its leader Jo Swinson was amongst their casualties.  They will now have to elect a new leader. 

The SNP (48 seats (+13)) emerged as the other big winner of the election, and the issue of Scottish independence is set to feature prominently in the next Parliament.  Whether a Johnson administration can keep calls for ‘IndyRef2’ at bay for the entire 5-year term of Parliament remains to be seen.  Nothing perhaps is likely to happen until after the Scottish Parliamentary elections in May 2021 and the results of that election will influence the chances of another referendum.  In Northern Ireland, for the first time, there are now more nationalist MPs than Unionists, although the non-sectarian Alliance Party also won a seat.  The DUP’s vote was down 5.4% and its Westminster leader, Nigel Dodds, lost his seat.

Implications for Policy and Farming

All of this means that the make-up of the next Parliament will be very different to the last and there is finally a bit more certainty in terms of the direction of travel on key policy issues, most notably Brexit.  With a majority of 78, the PM also has greater scope to face-down the more extreme elements within his own party, especially the European Research Group (ERG), which could signify a move towards a softer form of Brexit once the Future Relationship negotiations get underway.  Already, Sterling has strengthened following the results, rising by 2.5 per cent against the Dollar after the exit polls emerged. Although Sterling has cooled a little since, with £1 currently worth €1.20 (or €1 = £0.83) it shows that investors appreciate the greater certainty arising from the results.  From an agricultural perspective, as the Pound and Euro exchange rate for this year’s BPS payments has been already set, it will not affect payments which still remain to be made.  However, a stronger Pound is generally bad for UK farm profitability. 

A few weeks back, we examined the manifestos of the main Parties (click here for more detail).  The most eye-catching policy promise was that the Conservatives would maintain farm support spending at current levels for the term of the next Parliament (i.e. five years) and, in return, farmers will be expected to protect the environment and safeguard animal welfare.  Whilst not referring directly to farming in his victory speech, Boris Johnson was keen to emphasise the UK’s commitment to become carbon neutral by 2050.

In terms of migration, the PM referred to a points-based scheme similar to Australia and, for the food and farming industries, the challenge is to now ensure that the skill-sets in short supply make their way onto the Shortage Occupation Lists so that companies can access the labour that they need to function competitively.  Although there was a commitment from the Conservatives to increase the size of the Seasonal Agricultural Workers’ Scheme (SAWS) from 2,500 to 10,000, this is inadequate for a sector which employs between 75,000 to 90,000 casual migrant workers alone.  Added to which there are another approximately 34,000 regular farm employees that are continental EU nationals and an additional 116,000 EU employees in the food and drink manufacturing sector.  This reveals the extent to which the food and farming industries are reliant on migrant labour and industry participants need to work closely to ensure that its voice is heard in the next Parliament.

For the time-being Theresa Villiers continues in her post as Defra Secretary.  It is rumoured that the Prime Minister will have a post-Brexit reshuffle after the 31st January and it would be no surprise to see someone else take over at the Department.  With new farm policies to put into place, the environment moving up the agenda and food an increasingly hot topic, Defra is now less of a backwater than in the past.  The new Conservative administration will almost certainly continue with the ‘public money for public goods’ concept, as encapsulated in the new ELM scheme put forward by Michael Gove.  A new Minister could still have a big influence on how the scheme (and policy more generally) evolves at an operational level over the next few years.

Brexit Timeline

The Withdrawal Agreement Bill (WAB) will be re-presented to Parliament in the next few days.  With a large majority in the House of Commons this is certain to be passed and, as a manifesto commitment, the House of Lords by convention, will not vote it down.  The necessary legislation should pass into law early in the New Year ready for formal exit a 11pm on 31st January 2020.

At this point, the UK will enter into a Transition period (until 31st December 2020).  During this, nothing will really change in terms of the UK’s relationship with Europe – trade, migration, travel and all EU rules will continue unchanged as if the UK were still a full member.  It is only at the end of the Transition Period that the real effects of Brexit will start to be seen.

There is also still much negotiation to come.  The current situation is more akin to the two-legged European football tie and we are only at the end of the first leg.  At least now, we know that the 2nd leg will take place, and this relates to the Future Relationship talks with the EU.  Attention is now switching to these, which are discussed in more detail in the following article.

Race for Next PM – The Final Two

At one stage, there were thirteen candidates seeking to become the next Prime Minister (and leader of the Conservative party) and, in some ways, the leadership race was akin to the Grand National with a varied range of runners and riders, some of whom had little chance of success.  In recent weeks, this has been whittled down to two candidates – Boris Johnson (previously mayor of London and Foreign Secretary) and Jeremy Hunt (Foreign Secretary).  This article examines the credentials of both, particularly from an agri-food perspective.

Boris Johnson

Whilst being the front-runner from the outset, the former mayor of London does not have much form when it comes to agri-food matters.  One of his few utterances related to complaints about the burden of EU regulations (e.g. on sheep disease) to protect consumers in advance of the referendum.  He also promised farmers that their subsidies would be preserved post-Brexit.

With regards to trade, at a January 2019 conference in Dublin, he was keen to emphasise that the UK still wants to do business with Ireland, noting to the audience that “we buy 78,000t of your cheese every year,” whilst also emphasising that he does not want to see a hard border in Ireland and that other solutions can be found.  Although Mr. Johnson’s preference is for the UK to leave the EU with a deal, he is of the view that it is possible to leave the EU on 31st October without a Deal, claiming that it would be possible to extend existing arrangements for as long as necessary to negotiate a free-trade agreement under GATT: Article XXIV (24).  Most trade policy experts dispute this claim, noting firstly that the application of this Article would require the EU’s agreement (highly unlikely in the event of a No Deal).  In addition, according to paragraph 5, sub-paragraph (c) of Article XXIV, it could only be applied if there was a “plan and schedule” for the formation of a free-trade area or customs union with the EU “within a reasonable length of time.”  By definition, none of this would be in place if there were to be No Deal on 31st October.  Thus leaving the UK Government in the same conundrum as that faced by the May administration.

Jeremy Hunt

Jeremy Hunt does not have much of a track-record with regards to agriculture either.  Before going into politics, Mr Hunt was an entrepreneur in technology marketing consultancy and in online publishing.  In Government, he has held roles as Health Secretary and Foreign Secretary.  Whilst not having much direct involvement in food and farming, he was the driving force behind a plan to halve childhood obesity by 2030 which he sees as a major cost burden to the NHS.  Although his website devotes some attention to the Agriculture Bill, post-Brexit environmental protections, and policy, as well as food safety and food labelling, it is very much a reiteration of the current Government line on these issues.

Whilst siding with Remain in the June 2016 referendum, Mr Hunt was quick to row-in behind the effort to leave the EU by securing a deal which would enable the UK to continue to trade closely with the EU whilst emphasising the Government’s commitments to guarantee workers’ rights, consumer protection and environmental protection.  He has mentioned that if there was no possibility of a Deal with the EU on 31st October that he would leave without a Deal if necessary.  However, he is also open to a short extension if a Deal is within sight.

Although Mr Hunt claims to have a good rapport with EU leaders such as Merkel and Macron, he did attract the ire of Donald Tusk in October 2018 for comparing the EU with the Soviet Union.  However, Mr Hunt’s track-record for controversy is much less than that of Mr Johnson and he is also seen as much less of a charismatic figure.  Based on the voting to date, it appears to be an uphill task for Mr Hunt to become the next Prime Minister.  His main hope might be for Boris Johnson to discredit himself with a major gaffe during the head-to-head contest over the next few weeks.  He may also need to create a “stop Boris” alliance within the party, potentially giving key roles to the likes of Michael Gove, Sajid Javid, Rory Stewart and Amber Rudd in a bid to appeal to all sections of the Conservative party to re-unite after the ructions of Brexit.  That said, it looks most likely that it will be Boris as PM after 22nd July. Whilst the Brexit journey has been eventful thus far, it looks set to go into overdrive in the Autumn.

For the farming sector, it is a case of wait-and-see what might happen.  Although Mr Gove is now out of the running to be PM, the possibility of a new Defra Secretary after a cabinet reshuffle has heightened.  A Hunt administration is likely to mean more of the same in terms of the direction of agricultural policy.  As for a Boris-led administration, who knows?  Whilst farming might be lower down his policy agenda, trade is likely to be centre-stage and this could have significant long-term implications for the competitiveness of UK agri-food.